Efforts to reduce smoking and improve health are being hampered by the black market trade of millions of illegal cigarettes filled with human excrement, dead flies, rat droppings, mould and asbestos, local authority leaders have warned.

The Local Government Association (LGA) said fake cigarettes posed a fire risk because they are not designed to extinguish when not actively smoked, damage honest businesses and cost the UK economy about £3bn a year in unpaid duty.

Recent efforts to crack down on the illicit trade have led to the seizure of hundreds of thousands of illegal cigarettes in Wolverhampton, Bristol and Nottingham. Sniffer dogs were deployed in Birmingham during raids on 12 premises across the city.

The London councils of Southwark, Bexley, Bromley, Greenwich, Lambeth and Lewisham have formed a partnership to tackle the trade of 114m illicit cigarettes which are estimated to be sold in the area each year.

Many have much higher levels of toxic ingredients such as tar, nicotine, carbon monoxide, lead, cadmium and arsenic than genuine cigarettes.

Councillor Joanna Spicer, vice chair of the LGA's safer and stronger communities board, said: "Counterfeit tobacco being sold cheaply through the black market by rogue traders is hampering council efforts to reduce smoking. This illicit trade is also funding organised criminal gangs, damaging the livelihoods of honest businesses and costing taxpayers billions of pounds a year.

"People buying cheap cigarettes might think they are getting a great deal but the truth is that they're not. If they knew what they might contain, they might think twice about buying them.

"Council prosecutions should serve as a strong warning to any shopkeeper thinking of stocking their shelves with illegal tobacco and not thinking twice about selling them cheaply to children and others."